The Treasurer, Peter Costello, has flagged that the Federal budget is $17 billion in surplus. It would seem predictable, then, that once an election is called, a large part of this surplus will be given away as income tax cuts if the Coalition is re-elected.

The nature of Federal election campaigns means that the Opposition faces real difficulties in announcing a tax policy before the incumbent Government, as the government has the fullest understanding of Treasury information.

In the 2007 campaign, Labor will most likely adopt a ‘me-too’ approach to tax cuts after they are announced by the Coalition, with a tweak here and there for preferred electoral constituencies.

The issue on tax for Labor will be, if they win government in 2007, do they want to be known as the government that permanently and decisively reduced personal income tax rates?

This may sound fanciful to both Labor diehards and to rusted-on Liberal voters. But there is a clear historical analogy. Going into the 1983 Federal elections, the idea that Labor was the party of free trade and financial deregulation, committed to the dismantling of tariffs and exchange controls, would have seemed ludicrous. The Left/Right divide at that time was clearly around the Liberals being ‘free market’ and Labor favouring government intervention.

If you looked at Labor in the early 1990s, it has clearly presented itself as being pro-free trade and pro-globalisation. It wore some significant electoral losses in that process, including the loss of Bob Hawke’s seat of Wills in Victoria. It also embellished free trade within the more familiar Labor discourses of multiculturalism and republicanism. But there is little doubt how far Labor had travelled on the issue of industry protection and financial controls from where it was in 1982.

If Kevin Rudd and his team were to win government in the 2007 Federal election, they will face an issue of how they want to change Australia, and how to take the population on that journey.

The Hawke/Keating years saw openness to globalisation and structural reform as a consistent mantra that weathered the periodic storms of public opinion. The Howard/Costello years saw a similar energy devoted to the introduction of a GST as being in the medium-term national interest, in the face of short-term unpopularity and special interest group pleading.

If Labor wins government in 07, and does so with such a margin that would guarantee at least two terms (6 years), what do they want their legacy to be? A structural shift in the income tax regime, that established Labor as a low tax political party, would seem both feasible and desirable. It would cut a hole in a decade of ‘tax-and-spend’ conservatism. It could also place Labor in a situation where it could govern for 12 years rather than three or six.